LECTURE 4: Passing of property and risk
Key topics
If you are not able to classify goods correctly; not be able to identify title etc.
Why is it important to know when property passes? The right timing? RES PERIT
DOMINO – risk follows property! Usually in B2B contract – risk would follow the
property! Once we establish the moment when property passes… this is the time when
risk passes as well!
If something happens to goods right at the time of passing goods, it is paramount to
establish when? Who bears the loss of the goods!
Example; selling a chair, there is a fire in the room and a chair breaks down. Who bears
the risk of it? in order to establish this, we need to establish whether the property
passed to the buyer = the risk also passes = meaning the buyer has to bare the loss!
Also important for e.g. insolvency – seller/company becomes insolvent; board of
directors loses power, insolvency officer steps in task = gather all property and
satisfy all outstanding debts of the company! Important if property didn’t pass to
buyer – insolvency officer has right to it!
Once the property passes the seller can sue for the price! The price of goods can
have no influence over timing. Its all contractual look at what’s in the contract! Once
the property passes to buyer – the seller straight away has power to claim the price.
Classification of goods
Rules for determining when property passes
Goods forming part of an identified bulk
Retention of title clause
Passing of risk
Consumer Rights Act
Recommended reading
• Baskind/Osborne/Roach - Chapter 11
• Bradgate - Chapters 15 & 16.1
• Dobson/Stokes – Chapter 3
• Atiyah - Chapters 19 & 20
• Goode - Chapters 8 & 9
• Sealy & Hooley - Chapter 8
• Law Commission Report no 215: Sale of Goods forming
part of a Bulk: 1993
Sealey ‘ ‘Risk in the law of sale’ 1972 31CLJ 225
Sasson ‘Deterioration of Goods in Transit 1962 JBL 352
Sasson ‘Damage resulting from natural decay under insurance, carriage and sale contracts’ 28 MLR 180
Burns ‘Better late than Never. The Reform of the Law on the Sale of Goods Forming Part of the Bulk 1996
59 MLR 260
Davies ‘Continuing Dilemmas with Passing of Property in Part of a Bulk’ 1991 JBL 111
,I. Classification of goods
Importance of passing of property? S.16-20 SOGA
Specific / unascertained goods
In order to determine the exact time that property passes it is important to classify the
goods:
Under SOGA, goods are classified as either “specific” or
“unascertained”.
Specific goods are defined in section 61(1) SOGA as:
“goods identified and agreed on at the time the contract is made”: e.g. “ this bottle of
wine here”; most goods bought in the supermarket at the cash desk
If goods are unascertained at time contract is made = they can never become specific
goods! Although they can become ascertained.
You are left with the following options
a) Specific – defined at time of contract is made.
b) Or they are UNASCERTAINED!
You cannot transfer ownership of unascertained goods UNTIL you ascertain them!
s.61 (1)
In order to pass property – first; ASCERTAIN THEM, if you fail to ascertain = property
doesn’t pass! There are different ways of ascertaining goods! in this lecture!
Unascertained goods are not defined by SOGA, but may
be:- classified in 2 different ways;
(1) purely generic goods e.g. “500 tons of sugar”: these may in turn be either:
• future goods - if the seller does not own any goods of the contract description at the
date of the contract (e.g.: a ship to be built by the seller) or-
• existing goods - if the seller does own goods of the contract description, but the
contract does not identify the contract goods.
(2) a specified quantity of unidentified goods from an
identified source (or “bulk”, as it is usually known) e.g. 500
tons of sugar out a cargo of 1000 tons (these may be future
or existing goods) known as a BULK. 500 tonnes of sugar out of a cargo of 500
tonnes. Can be future or existing! If planning to buy 500 tonnes out of bulk you will
have to be able to take out 500 tonnes from the bulk – unless you do it, you wont be
able to transfer the property. YOU DON’T KNOW WHICH 500! must be able to
separate the contracted amount, put on side and that is one of the ways of ascertaining
the goods!
,Examples
B wishes to buy 6 bottles of a particular wine, Chateau X. He
goes to the shop of S, a wine merchant.
Classify the goods in each of the following situations:
1. There are 6 bottles of Chateau X on the shelf in the shop,
and B says, “I’ll take those”. specific! Buyer points at “THOSE” ON THE SHELF!
2. There are no bottles of Chateau X in the shop, but S tells
B that he has six bottles in his cellar. B agrees to buy them. test here = seller must
supply the goods which have been identified at time the contract was made. Seller
cannot fulfil his obligation to buyer for supplying substitute goods!
If you buy Picasso painting = always be specific. But if able to substitute the painting
e.g. replica/fake = goods will be unascertained!
e.g. selling 6 chairs in this room, but unless and until you know exactly which 6 chair im
talking about = goods will be unascertained! At time of contract – you have to be able to
point at the goods!
3. There are no bottles of Chateau X in the shop, so B orders “6 bottles of Chateau X”.
S has 6 bottles of Chateau X at home, which he intends to sell to B. unascertained
4. S has 12 bottles of Chateau X in his cellar, and B agrees
to buy “6 bottles out of the 12 bottles of Chateau X currently
in S’s cellar”. unascertained! We don’t know which 6 our of the 12.
II. Rules for determining when property passes
Time of the transfer of property: ss. 16-19 SOGA
The rules vary depending on whether the contract is for the sale of specific or
unascertained goods.
A) Passing of property in specific/ascertained goods
Property passes when the parties intend it to pass: s.17 SOGA – allows parties
themselves to determine when property in goods shall pass!
For the purpose of ascertaining the intention of the parties regard shall be had to the
terms of the contract, the conduct of the parties and the circumstances of the case.
Look at what the contract says – if there is nothing regarding passing of property =
applying rules 16-20 (Inc. 20A and 20B) SOGA. rules of deemed intention. IF THERE
IS NOTHING IN THE CONTRACT.
1) Look at contract –
2) If there is nothing revert to SOGA! Rules in SOGA vary; depending on
whether the contract is for the sale of specific goods/ or sale of unascertained
goods!
Rules to determine the parties intention: s. 18 (1-4) SOGA (specific goods)
First 3 rules specific goods; RULE 1-3!
Rule 4 – deal with sale or return type of sale.
Rule 5+ – deals with unascertained goods! straight to rule no.5
,Rule 1. —Where there is an unconditional contract for the sale of specific goods
in a deliverable state the property in the goods passes to the buyer when the contract
is made, and it is immaterial whether the time of payment or the time of delivery, or
both, be postponed.
Unconditional contract: if there is nothing to prevent the property from passing (Sealy/
Hooley)
When will the property pass when applying rule 1; when the contract
was MADE! time of payment/delivery is not relevant!
Case Dunant v Skinner; buyer bought several vehicles, after they
were knocked down to him, buyer wanted to pay by cheque,
auctioneer insisted that before taking the vehicles, the buyer should
sign a specific document – that no property/vehicles would pass to
him until the cheque was cleared!
COURT HELD; PROPERTY PASSES at an auction at the moment
the goods are knocked down to the buyer – when hammer goes BAM
BAM BAM time of passing of property! Vehicles were already the
buyers property! certificate was held to be ineffective to prevent
passing of property!
If you sell specific goods and in deliverable condition = contract will pass at time it is
made!
Deliverable state (s. 61(5)): Goods are in such a state that the buyer would under the
contract be bound to take delivery of them (however, if the seller is bound to do
something to the goods in order for them to be ready to be handed over they will not be
in a deliverable state)
Rule 1
Dunant v Skinner & Collom [1948] 2 KB 164 (property passes in accordance with the
intention of the parties at the time of making the contract). At an auction motor vehicles
were sold to a man who was the highest bidder. The vehicles were delivered to the
buyer in exchange for a cheque and the buyer certified that the ownership of the vehicle
should not pass until the cheque had been cleared. However, the check was
dishonoured. Rule 1 applied.
“Accordingly, upon the fall of the hammer the property of this car passed to King unless
that prima facie rule is excluded from applying because of a different intention
appearing or because there was some condition in the contract which prevented the
rule from applying. In my view, this was clearly an unconditional contract of sale, and I
can see nothing whatever to make a different intention appear.”
, Rule 2. —Where there is a contract for the sale of specific goods and the seller is
bound to do something to the goods for the purpose of putting them into a
deliverable state, the property does not pass until the thing is done and the buyer has
notice that it has been done.
• Underwood v Burgh Castle [1922] 1 KB 123 – contract concerned sale of large
machinery, it was embedded in concrete at time of sale! * contract was FOR free on
reign fixed terms and conditions inserted into contracts governing relationships
between seller and buyer. Free on reign means seller had to separate the machine
from the base drill up the machine and dismantle – then load onto railway! FOR
means – sellers’ obligations were not complete until the machine was safely on the
railway wagon! Seller HAS TO DO EVERYTHING UNTIL HE PUTS THE MACHINE ON
THE RAILWAY WAGON – LIABILITY ONLY THEN!
They drilled out the machine and before putting it on the wagon, it was damaged
Question = whether the property passed?
COURT HELD; question; WHETHER the goods were in a deliverable state at time
when contract was made if they were = property would already had passed to buyer
under rule no.1. but in these facts rule no.1 didn’t apply because goods were not in a
deliverable state – seller had to dig out the machine from concrete, dismantle it then put
on wagon!
Contract of sale for a condensing machine which was standing bolted to a concrete
emplacement at the time of the agreement. The seller had promised to remove the
machine and load it upon the train. Rule 1 was not applicable, since goods were not in a
deliverable state when the contract was made.
Rule 3.—Where there is a contract for the sale of specific goods in a deliverable state
but the seller is bound to weigh, measure, test, or do some other act or thing with
reference to the goods for the purpose of ascertaining the price, the property does not
pass until the act or thing is done and the buyer has notice that it has been done.
When the goods are specific and they are not in deliverable state = applying rule
2 or 3! Rule 3 similar to rule 2 contains a similar provision that something has
to be done to the goods to determine the price! E.g. seller has to weigh the
goods/measure them! Rule 3 only applies if seller has obligation to perform the
act!
• Nanka-Bruce v Commonwealth Trust Ltd [1926] AC 77 – must be the seller!
Rule 3 only applies if the seller has the obligation to perform the act. If the goods are
to be weighed by another person, property will usually pass under r. 1 or r.2.
CLARIFICATION: imagine that buyer agrees to buy a car; seller agrees to respray
it. 2 possibilities; a) if the buyers agreed to buy a car is conditional on seller
respraying the car… then this will be rule no.2 contract! Property will not pass
until the car had been resprayed and buyer had noticed this!
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